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Imran Khan's economic challenge: Rescue, resuscitate, reform Pakistan

With cricketer turned politician Imran Khan on the cusp of becoming the next Wazir-e-Azam of Pakistan, his economic vision has the potential of transforming Pakistan's stuttering economy. But his road to redeem Pakistan's economy could ruffle a lot of feathers, including that of the Pakistan army which has a major role to play in Khan's rise to the top. Khan certainly faces an uphill task – the nation he will lead sits at the bottom of the pile on several important social and economic parameters.

The World Bank estimates that Pakistan's GDP growth rate will decline to 5 per cent in 2019 from 5.7 per cent in 2017. In 2018, Pakistan won't grow more than 5 per cent. In 2020, it will grow at 5.4 per cent – significantly lower than other South Asian nations like India and Bangladesh. In 2017, its per capita GDP grew by 3.6 per cent – again lower than India and Bangladesh but better than Sri Lanka. In 2016, almost 5 million children in Pakistan were out of school. The country has the lowest primary school enrollment rate in the region. It has more child labourers than other nations in the neighbourhood. Its labour participation rates are abysmal. It ranks 147 in the Ease of Doing Business Index – better than Bangladesh. Suicide bombings, armed insurgency and military coups are the order of the day gnawing away the nation's soul every single day. In many ways, the Pakistan Imran Khan is inheriting is a tinderbox waiting to explode.

ECONOMY THE CAPTAIN WILL PRESIDE OVER

Size of the economy (2016-17)

$304 billion

Population (2016-17)

207.8 million

Per capita income (2016-17)

$1,463

Govt debt as % of GDP (2017-18)

67.2

Inflation (2017-18)

5.0%

Foreign exchange reserves

$9.6 billion

Source: IMF and State Bank of Pakistan

One of the key aspects of Khan's economic reform program which he dubbed as a “five-point emergency plan” in Pakistan Tehreek-e-Insaaf’s (PTI) manifesto, which could ruffle many feathers and generate a political backlash from his opponents, pertains to radically reform the way Pakistan spends its Rs 4.75 trillion (1 USD equals 129 Pakistani rupees) budget. Khan has promised that among other things, he would be looking to reduce the defence budget of Pakistan. While Khan hasn't specified how he intends to get Pakistan’s all-powerful military to reconcile to this, his plan is to trim Pakistan's $9.6 billion military budget which accounts for almost a fifth of the country's total budget.

Among other ways to reduce Pakistan's expenditure, Khan has proposed reducing the number of ministries in Pakistan to just 17 from the present 37. Khan had specified in his party's manifesto that he intends to abolish Pakistan’s railway ministry and take away Pakistan’s national airlines from the control of the military. Pakistan has many other peculiar ministries – including one for climate change, narcotics control and inter-provincial coordination. Khan had also promised to abolish discretionary funds and development funds given to Parliamentarians. Discretionary funds have often been cited as a major tool of exerting political influence and corruption in Pakistan. Chief Ministers of various provinces, the prime minister and Pakistan’s president have the power to give money to any lawmaker they wish to without consulting anyone. Khan has also promised to reduce expenses on the residences of the President by half in addition to converting the iconic PM house in the country’s capital into a public space.

While his party has stressed on these radical expenditure control measures, Khan's vision to boost Pakistan’s revenue through a massive overhaul of the country’s tax system could perhaps set an example for India. Khan had outlined that he would tax agriculture income – something that would be considered political hara-kiri in neighbouring India. In particular, Khan’s target are the large rich landowners who would have to cough up an agriculture tax. In a highly feudalistic society like Pakistan, this measure would achieve two objectives - get more rich people in the tax net and increase the share of direct taxes to make Pakistan’s tax regime less regressive. Presently, direct taxes make up just about 11 per cent of the country’s total tax collections. Khan’s revenue-boosting plan also involves a major crackdown on tax evasion. It is estimated that more than Rs 900 billion of taxable income goes undetected and untaxed in Pakistan every year. Khan’s plan is to make the country’s Federal Board of Revenue – which deals with tax evasion – autonomous and shield it from political influence.

To implement these radical economic moves, Khan had also outlined deep-rooted institutional reforms in Pakistan. One of the main thrusts of this reform agenda is to turnaround Pakistan’s inefficient state-owned enterprises by making them more autonomous by having specialised boards of management that would be responsible for CEO appointments and running these enterprises. Khan has promised that the nation’s PM would have no role in appointing the CEOs of these enterprises. In a 2014 report to the World Bank, the Pakistan Institute of Corporate Governance had estimated that there were 190 state-owned enterprises in Pakistan with just 16 of them representing a third of the market capitalisation of the Pakistan Stock Exchange. These enterprises were identified as inefficient, riddled with lethargic decision making and prone to extreme political interference. Khan had also mooted the idea of transforming Pakistan’s notoriously corrupt bureaucracy by hiring private professionals for important roles – a model which is being implemented in India by the Modi government and some state governments.

Another critical feature of Khan’s economic vision is his plan to extricate millions of young Pakistanis out of destitution and an uncertain future. One of the ways in which Khan plans to achieve this is by training two million youth within two years of coming to power. Khan also has a radical plan to stop funding schools and instead give money straight into the hands of students. Other measures include doubling the enrollment of girls in schools and increase spending on education to 5 per cent of the GDP within five years. Pakistan currently spends just 2 per cent of its GDP on education. Khan plans to usher in a welfare state by creating a fiscal space to fund these plans. According to his party’s manifesto, Khan would achieve this by increasing tax collections by upto 5 per cent of the GDP and eliminating losses of Pakistan’s state-owned enterprises to the tune of at least 2 per cent of the GDP. To create more jobs for Pakistanis, Khan had outlined increasing investment spending to more than 21 per cent of GDP. In 2016, investment spending in Pakistan was estimated to be little over 11 per cent of the GDP.